Jacobs Engineering: Cutting Position, Short Idea

Jacobs Engineering (JEC) is up to $78 range on an upgrade. I am cutting my position here as this is an out of favor group, and the stock has held up well. Frankly, when the fund is up and running I'd put a short on this type of chart to hedge and help us make some money.

This is an easy trade - short here near $78, and put stop loss over $81ish. (in fact we'd go long north of $83 on "strength" and a new higher level than the previous high) I think it heads to $70 and if I'm correct we make an easy 10% to hedge against the portfolio in the "global growth side". But I can't do that (now). So we sell, and get this down from a 0.9% stake to a 0.2% - effectively a holding stake for us (i.e. selling out of a position without literally removing it from the portfolio)

Look at the trend line from May - a series of lower highs (I count 6!). If I had any computer skills I'd draw a beautiful line on this chart connecting all the highs and showing you where you can short it on each spike up. Until that trend breaks, it's a stock with no hope on the long side other than oversold rallies after it gets pummeled.

I like this name and group fundamentally, but this is not a place money is flowing to at this time. We sold out of McDermott (MDR) yesterday and it's being hammered to the tune of 8% down today, as case in point. We'll continue this same pattern of behavior we've been doing lately until these sectors begin to attract real buying interest - sell on any lifts up into resistance. At this point there is no difference between these and banks or airlines or retailers or housing stocks.

We're playing with one arm tied behind our back since we can't do the 2nd half of these trades and that is (after selling down) shorting them down from the resistance areas, so we're losing a lot of profit opportunities from the dark side but that is the vehicle we have for now, so can't do much about it.

Long Jacobs Engineering Group in fund; no personal position

Comments

[yank:]

"There is no difference between these stocks and the bank, airlines, etc"

Yeah the only difference I guess is that JEC:

1. Is incredibly profitable.
2. Has an enormous backlog.
3. Has wisely pursued JV opportunities in the Mideast and India, where future project growth is highly likely.
4. And I don't see "infrastructure" spending going away anytime soon.

I have to admit the lower highs and lower lows is troubling news however. Baffling, considering the company just raised earnings guidance again. I suppose that is another difference between JEC and the stocks you mentioned. Do you think the airlines or bank stocks will be raising their guidance anytime soon? Don't hold your breath on that one. JEC is a strong buy.

2008 Aug 15 03:00 PM

[helplessobs...:]

Well stated yank. In a bear market most stocks get bid down if only to generate cash for margin calls as panic sinks in. I watch stocks that hold up well in these conditions as they will lead the way up when conditions improve. JEC is on my watch list.

2008 Aug 15 03:39 PM

[Chris Santiago:]

Agree JEC is a great company. I think some lever it to oil too much, because O&G infrastructure is something like 25-30% of rev; but oil could drop $30-40 and these projects would still be economical for the O&G companies.

2008 Aug 15 04:54 PM

[John C. Lee:]

JEC looks like a short-term short trade given that it formed and confirmed an evening star reversal. However, there is major support (tested about 7 times) between $67.5 - $70.

www.WeeklyTA.blogspot....

2008 Aug 15 11:38 PM

[kkin365:]

Is JEC involved in building infrastructures for the 2012 London Olympics?

2008 Aug 16 02:57 PM

[mkreisel:]

Nobody is mentioning the "double top"?

If 70 is taken out, it can go all the way down to 45-50 level.

2008 Aug 17 02:43 AM

[John C. Lee:]

Yup, for the long-term there is a double top that formed. That support is highly likely to be taken out due to the fact that it's been tested so much. The descending triangle and the 50-day MA/200-day MA crossover are also both bearish. This one is going down...

2008 Aug 19 12:27 PM